From the perspective of foreign trade disputes, due to the improper selection of trade terms, it often causes hidden dangers in the implementation of import and export contracts, and even causes enterprises to bear huge economic losses. The rational selection and proper use of trade terms has become the primary issue in transaction negotiation and contract performance in international trade.
Use terminology to consider
In the negotiation process, import and export enterprises generally consider the following main factors when choosing trade terms.
International market conditions In the international market competition, trade terms can become an important means for exporting enterprises to win customers with the changes in market conditions. Export companies often use DES, DEQ or DDP destination delivery terms that are more favorable to importers in order to mobilize each other's purchasing enthusiasm.
Sometimes exporting companies may also use CFR, CIF, CPT or CIP to indicate that they are willing to undertake the transportation and other matters such as the chartering of goods, and the responsibility of paying the freight, and even willing to bear the insurance liability of the goods, to a greater extent The responsibility and obligations of the exporter.
When selecting trade terms for transportation factors, first consider the appropriate mode of transportation. If the method of shipping is adopted, the import and export enterprises should use trade terms suitable for water transportation such as FOB, CFR, CIF or FAS. When using land transportation, trade terms suitable for various transportation modes, such as CPT, CIP, FCA, etc., can be selected.
In addition, if one of the import and export parties has sufficient capacity to arrange transportation, and it is economically more cost-effective, in the case of lower shipping costs, the trade term for self-arranged transportation can be sought. For example, exporting companies can strive to use terms such as CFR, CIF or CPT, CIP, and importing companies can try to win the terms FOB, FCA or FAS. If one of the parties does not intend to assume responsibility for transportation or insurance, try to use the term that the other party is responsible for.
When choosing a trade term, you also need to consider the characteristics of the goods, the volume of the volume and the selection of the appropriate means of transportation. If the goods require a specific means of transport and the exporting company cannot complete it, the F group terminology can be used and the importer is responsible for arranging the transport. If the transaction volume is too small and there is no direct liner transportation, if one of the enterprises is responsible for arranging transportation, the cost is too high and the risk is increased. It is better to use the term that the other party is responsible for arranging transportation. For example, an exporting company can use the F group term, and an importing company can use the C group or D group terminology. Of course, import and export companies also need to consider the market of the domestic charter market.
Freight and surcharges are also one of the components of the price. In the choice of trade terms, the changes in the freight rate in the charter market should also be taken into account, and the risk of rising or falling freight rates should be taken into account. In general, if freight and surcharges (such as fuel costs) are bullish, in order to avoid the costs involved, the terminology for transportation by the other party can be chosen. If you import, you can use the C group or D group terminology, and use the F group terminology when exporting. When the shipping and surcharges are bearish, the opposite is true.
The choice of transportation route is not only related to the level of freight, but more importantly, the size of the risk and the handling of insurance matters. If the exporting company is not willing to take too much risk, you can choose the E group, F group, C group terminology, try not to choose the D group; on the contrary, if the importer is not willing to bear the risk of the goods in transit, then try to use the D group terminology.
Geographical factors Both import and export companies cannot ignore their geographical conditions when considering the choice of trade terms. For example, Japan, the United Kingdom and other island countries, due to geographical restrictions, it is not appropriate to use the DAF terminology; but the trade between countries like China and Mongolia is more suitable for the term.
It is worth noting that the use of trade terms has its own norms. Trade terms that apply to water transport are often followed by port names and cannot be inland cities, such as FOB Kathmandu or CIF Manchuria.
The location after the trade term should not be used as a general term, such as the European main port (EMP), to avoid disputes caused by too many delivery locations.
Both importers and exporters are not free to change the shipping location and destination. Generally speaking, changing the place of shipment (port) and destination (port) is equivalent to changing the transportation route, and the risk during transportation is also changed. If the party responsible for insurance has suffered unreasonable losses, The other party is responsible for compensation.
Customs clearance procedures In international trade, the customs clearance of goods is an important responsibility of both import and export. Importers are usually responsible for import customs clearance, and exporters are responsible for export clearance. However, in accordance with the provisions of the "General Rules 2000", EXW terminology import and export clearance work is the responsibility of the importer, and the export and customs clearance work under the DDP term is the responsibility of the exporter. Therefore, when these two terms are used, the party responsible for customs clearance must have a detailed understanding of the policy requirements, procedures and cost burdens of the customs clearance work of the other country. If there is no ability to complete the work, other terms should be used, such as The importer can change the EXW to FCA.
Customary Practices Some countries and regions have customary practices that use certain trade terms. For example, the United States is accustomed to adopting FOB terminology, and countries in the Middle East are accustomed to adopting CFR terminology. In order to ensure a smooth transaction, the trade habits of the other party should be respected under appropriate circumstances.
When foreign exchange control is exported using terms such as EXW, DES, DEQ or DDP, if there is foreign exchange control problem in the country, the seller will encounter many difficulties and risks. Therefore, for countries with foreign exchange controls, use the above terms as little as possible. In countries or regions where foreign exchange controls are generally required, importers may use FAS, FOB and other terms to import, and exporters may be required to use CIF or CFR terms to trade.
Government intervention Some governments often directly or indirectly stipulate that domestic manufacturers must export goods in CFR or CIF terms, or import goods in terms of FOB, FAS or FCA to support the development of the insurance or transportation industry in the country. Therefore, both parties to the transaction must also understand whether the country and the other country have similar regulations and are one of the important factors in the choice of trade terms.
Fulfilling contract attention risk
In the course of contract performance, the following major risks should be noted when using trade terms correctly.
The definition of loss of goods is defined by the ship's side as the boundary between the buyer and the seller. It is a distinctive feature of the trade terms of the three shipping ports of FOB, CIF and CFR. However, when these three trade terms are used in actual business transactions, the misunderstanding of the risk of the transfer over the ship's side often occurs. For example, the exporter checks the goods before delivery, and the quality and quantity are in compliance with the contract. However, after the goods are delivered to the port of destination, the importer checks the goods and finds that the quality or quantity of the goods does not meet the requirements. At this point, it is not possible to simply determine the attribution of responsibility by "the port of shipment".
The basic principle of mastering such problems is to see whether such losses are inevitable or accidental. The so-called inevitable loss usually means that there is a quality hazard before shipment or during the production process, and the exporter is responsible for this. If the exporter is unable to control the damage caused by external factors during transportation, he will not be responsible.
The freight forwarding is concluded in accordance with FOB conditions. The importer is responsible for chartering the ship and arranging for the vessel to pick up the goods at the port of shipment. The exporter shall prepare the goods stipulated in the contract and put the goods on the buyer’s dispatch during the shipment period. ship. At this time, the work of cargo and cargo connection is very important.
In order to avoid the disconnection in the actual operation, resulting in goods such as ships or ships, the import and export parties need to seriously negotiate the details of the ship and the shipment, and clearly stipulate in the contract, for example, the contract only provides for later shipment. The date, or the practice of pre-monthly shipments, should also require the importer to issue a notice of dispatch to the ship several days before the date of shipment. In this way, the exporter can decide, based on the notification, the appropriate time to ship the goods to the port. In addition, the parties should strengthen their contacts and be familiar with the relevant provisions of international practice.
The risk of symbolic delivery Currently, there is a symbolic delivery method in international trade, the exporter delivers the voucher, and the importer pays the voucher. It should be noted that if the exporter ships the qualified goods and issues the required documents, but the time for submitting the documents exceeds the agreed time, the importer still has the right to refuse to accept.
In the case of the letter of credit payment method, the contract and the letter of credit do not stipulate the time of delivery, in accordance with the interpretation of the Uniform Customs and Practice for Documentary Credits, unless otherwise stated in the letter of credit, the seller shall deliver the order within 21 days after the bill of lading. Otherwise the bank can reject the receipt.
In the near-ocean transportation, because the distance from the port of loading to the port of destination is relatively close, in order to prevent the goods from arriving before the documents, the importer is unable to pick up the goods and cause huge terminal expenses, often the beneficiary is specified in the letter of credit (seller The specific time to pay the bill, this time is less than 21 days, usually only a few days.
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